Fixed place permanent establishment not created by seconded employees where foreign enterprise lacked control over premises and business operations.

Seconded employees working full-time with an Indian subsidiary did not, on these facts, create a fixed place permanent establishment under Article 5 of the India-Japan Tax Treaty. The secondment terms showed the employees were integrated into the subsidiary's business and under its control, direction, supervision, and responsibility, while the foreign enterprise had no control over the premises, assets, or personnel of the Indian entity and bore no vicarious liability for their acts. On that basis, the essential elements of a fixed place PE were not met, and the addition based on the alleged PE was set aside.

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Issues: Whether the assessee constituted a fixed place permanent establishment in India through seconded employees working with the Indian subsidiary under Article 5 of the India-Japan Tax Treaty.

Analysis: The secondment agreement showed that the seconded employees were integrated into the Indian subsidiary's business, worked full-time for it, and were under its control, direction, supervision, and responsibility. The agreement also stated that they acted in their personal capacity and not on behalf of the assessee. The assessee had no right over the subsidiary's assets or employees, bore no vicarious liability for any loss caused by the seconded employees, and had no control over the premises or structure of the Indian entity. On these terms, the essential requirements of a fixed place permanent establishment were not satisfied.

Conclusion: The assessee did not have a fixed place permanent establishment in India, and the finding of the Assessing Officer and the Dispute Resolution Panel was erroneous.

Final Conclusion: The addition based on the alleged permanent establishment was set aside and the assessee's appeal succeeded.

Ratio Decidendi: Mere secondment of employees to an Indian subsidiary does not create a fixed place permanent establishment unless the foreign enterprise has control over the place of business and carries on its business through that place.

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